UPDATE 3-US senators seek probe into royalties on coal exports

By Patrick Rucker

WASHINGTON Jan 4 (Reuters) - Two influential U.S. senators
have asked the Interior Department to examine whether coal
companies are dodging hundreds of millions of dollars in royalty
payments on lucrative sales to Asia, citing a Reuters
investigation into the matter.

The lawmakers who lead the Senate Energy and Natural
Resources Committee want officials to find out whether miners
are short-changing taxpayers when they tap the coal-rich Powder
River Basin in eastern Montana and Wyoming.

The basin is mainly federal land and so taxpayers are due a
share of those sales.

Any wrongdoing by the mining companies must be found out and
punished, the lawmakers said in their letter, which was sent on
Friday.

"If any violations of the law have occurred, companies
should be required to cure any gap in royalty payments and, if
misconduct has occurred, civil penalties should be levied,"
reads the joint letter from Democratic Senator Ron Wyden, the
incoming committee chairman, and the panel's leading Republican,
Senator Lisa Murkowski.

A spokesman for the Interior Department said that officials
aimed to answer the senators' questions and tighten controls on
coal royalties. [ ID:nL1E9C47SN]

"The Department is committed to collecting every dollar due
per provisions of existing law," said Patrick Etchart, a
spokesman for the Office of Natural Resources Revenue within the
Interior Department.
CHEAP DOMESTIC POWER

Powder River Basin coal, which supplies about 40 percent of
U.S. demand, has typically gone to feed domestic power plants,
and policymakers never considered Asian sales when they
conceived royalty rules, Reuters reported in October.

The coal policies meant to keep domestic power cheap and
abundant are now padding the bottom lines of companies like Arch
Coal Inc, Peabody Energy Corp and Cloud Peak
Energy Corp at the expense of taxpayers, Reuters
reported last month.

The companies did not reply to a request for comment.

The senators cited Reuters reporting when they warned that
coal miners may be selling to sister companies at artificially
low prices to dodge royalty payouts.

Congress' investigative arm, the Government Accountability
Office, has for months been examining the federal coal program.
The Department of the Interior also has an open investigation.

"This is so obvious it shouldn't need to be said: Coal
companies need to be paying taxpayers all of the money they are
owed," Wyden said in a statement. "If regulators, or decades-old
laws, are not doing enough to protect the public interest, our
committee intends to find out, and to fix it."

Murkowski, a supporter of free energy trade, said she
expects officials to protect taxpayers' stake in sales from
federal land.

"Energy exports can create jobs, generate revenue, and
improve our balance of trade," Murkowski said in a statement.
"As we seek to maximize these benefits, we must be certain that
coal exporters are following the rules."

The lawmakers noted that 118 million tons of coal have been
exported from Western states since 2001. They urged officials to
audit those years and look for abuses.

In afternoon trading on the New York Stock Exchange, Cloud
Peak Energy was up 0.5 percent at $19.40 per share, Arch Coal
was up 3.1 percent at $7.56 and Peabody Energy was up 0.6
percent at $26.79.

NATURAL GAS PRECEDENT?

While the industry says it is acting aboveboard, outside
lawyers point to a natural gas precedent that they say indicates
the issue is far from settled.

In the late 1970s, Marathon Oil Corp used a similar
accounting system for royalties on natural gas that was produced
in Alaska but sold to Japan.

A federal court eventually told Marathon to pay out
royalties based on the overseas value. Officials fined Marathon
$10 million.

Peter Appel, a former Justice Department attorney, said the
case shows that officials expect taxpayers to get a taste of the
true gains on exported fuel but that the matter should remain a
civil, not a criminal, case.

"This seems to fall pretty squarely in the civil arena,"
said Appel, who prosecuted cases for the Justice Department's
Environment and Natural Resources Division and teaches at the
University of Georgia School of Law.